South Korea's growth falls from 5-year high as property boom cools

A woman walks past real estate agents' offices in the Gaepo-dong residential complex in Seoul.
A woman walks past real estate agents' offices in the Gaepo-dong residential complex in Seoul. PHOTO: BLOOMBERG

SEOUL (BLOOMBERG) - South Korea's growth rate retreated from a five-year high as a surge in property transactions that supported the economy earlier in 2015 fizzled out.

The gross domestic product rose 0.6 per cent in the fourth quarter from the previous three months, when it jumped by 1.3 per cent as shoppers flocked back following the MERS outbreak, data from the Bank of Korea showed. Compared with a year earlier, GDP grew 3 per cent.

Tepid growth underscores the difficulties policymakers face relying on domestic demand to shore up growth as China's slowdown and global uncertainties hit export industries. While the central bank and the government both project that the economy will expand at least 3 per cent this year, economists surveyed by Bloomberg estimate just 2.8 per cent.

"Whether the Korean economy can post 3 per cent growth in 2016 depends on government efforts to stimulate domestic demand and an improvement in the external picture," Mr Lee Sang Jae, a Seoul-based economist for Eugene Investment & Securities Co, said before the data was released. "The export slump persisted."

Construction investment fell 6.1 per cent during the October-December period from the previous quarter, according to Tuesday's data. Private consumption expanded at 1.5 per cent, government spending grew 1.2 per cent, while exports rose 2.1 per cent by volume.

While housing transactions surged to a record 1.19 million units this year, supported by low borrowing costs, the pace slowed in the fourth quarter. Transactions fell 10 per cent in December from the previous month, data from the land ministry showed.

The housing market is being affected by tighter lending rules to curb debt growth. Construction was also hurt as state-run organisations, which used up most of their budgets on building infrastructure earlier 2015, cut back on investment.

Private spending may be weaker in 2016 as government measures including temporary tax cuts on things like cars and large promotion events at retail stores ended in December. Structural and demographic issues including high household debt and an aging population are also affecting consumer spending.

The economy's rebound in the third quarter came as an outbreak of the Middle East Respiratory Syndrome in Korea faded as shoppers returned and the government introduced temporary consumption tax cuts and an extra budget.